FDA Concerns Ruin Biotech's Day

Investors usually don't get a look at the briefing documents for an advisory panel until the Food and Drug Administration posts them on their website two days before the advisory committee meeting. But the FDA put Chelsea Therapeutics (NAS: CHTP) in a bit of a pickle. It sent the company the documents for the advisory panel for Northera, its treatment for neurogenic orthostatic hypotension in certain diseases, well ahead of the advisory panel next week.

Chelsea's President and CEO Simon Pedder was scheduled to talk at the BIO CEO & Investor Conference today. But coming out cheering for the drug while having knowledge that the FDA might not be so keen on the safety profile wouldn't fly, ethically speaking (and probably isn't permitted in SEC rules, either). So Chelsea did the only thing it could: It spilled the beans a little early, sending shares down 38% yesterday.

Chelsea didn't actually release the briefing documents -- we'll have to wait until they're posted by the FDA next Tuesday -- but it appears that, while efficacy was the expected target of scrutiny, the FDA is taking a little closer look at the safety as well.

That's somewhat surprising considering the history of the drug. Northera has been approved and used in Japan for more than two decades. All told, 46,000 patients receive the drug every year. Of course, being approved in Japan isn't a guarantee of approval here. InterMune's (NAS: ITMN) Esbriet is approved there, but thus far has failed to gain approval stateside. Despite a positive 13-5 vote, the FDA reminded investors that it has the final say in May of 2010, sending InterMune shares plunging 75% when it rejected Esbriet.

There were 19 deaths in the trial, but this is a fairly sick population that's taking the drug, so that's not surprising. The biggest concern is likely the five cardiovascular deaths, but only one was noted as possibly related to Northera, and the patient had been on the drug for about two years.

Nothing in the safety profile jumps out at me as being worthy of rejecting the drug -- especially given its history -- if the efficacy data was stellar. Unfortunately, it's not. There are issues with the small size of the clinical trial and questions about the best endpoint to measure improvement of the patients. That's not Chelsea's fault -- it's a complicated orphan disease; small populations with convoluted endpoints are the downside of investing in orphan drugmakers. The upside is, if you can gain approval for an orphan drug as BioMarin Pharmaceutical and Alexion Pharmaceuticals have done, there's little to no competition for the patients that have a clear unmet need.

We'll have to wait for Northera's briefing documents to know whether efficacy, safety, or a combination of the two might derail the drug, but the good news for Chelsea's investors is that there seems to be more upside potential for next week's briefing documents than there is downside risk now that the cat is out of the bag.